Pricing Success
PersonalLines
Prepared for Tomorrow
Financial Strength
Commercial Lines
SIDOTI & COMPANY, LLC15TH ANNUAL EMERGING GROWTHINSTITUTIONAL INVESTOR FORUM
SELECTIVE INSURANCE GROUP, INC.MARCH 22, 2011
– SELECTIVE INSURANCE GROUP, INC. –
Pricing Success
PersonalLines
Prepared for Tomorrow
Financial Strength
Commercial Lines
FINANCIAL STRENGTH
DALE THATCHERCHIEF FINANCIAL OFFICER
– SELECTIVE INSURANCE GROUP, INC. –
Pricing Success
PersonalLines
Prepared for Tomorrow
Financial Strength
Commercial Lines
Forward Looking Statement
Certain statements in this report, including information incorporated by reference, are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. These statements relate to our intentions, beliefs, projections, estimations or forecasts of future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, or performance to be materially different from those expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by use of words such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely" or "continue" or other comparable terminology. These statements are only predictions, and we can give no assurance that such expectations will prove to be correct. We undertake no obligation, other than as may be required under the federal securities laws, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Factors, that could cause our actual results to differ materially from those projected, forecasted or estimated by us in forward-looking statements are discussed in further detail in Selective’s public filings with the United States Securities and Exchange Commission. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time-to-time. We can neither predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied in any forward-looking statements in this report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.
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MN
IA
MO
WI
IL IN
KY
OH
MI
MI
GA
SC
NC
VA
PA
NY
MDNJ
RI
DE
CTMA
TN
• 22-state super-regional
• 2010: $1.4B NPW
• 82% commercial lines
• 18% personal lines
• High tech, high touch business model
• Partner of choice – 980 independent agents
• Focus on enterprise risk management
• Rated A+ by A.M. Best for 49 years
Who We Are
Who We AreFinancialStrength
Pricing Success
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Focus on Enterprise Risk Management
• Historically strong capital position• Business model generates more earnings stability• Sophisticated underwriting and granular pricing• Strong reserving practices• Conservative reinsurance• Deep investment management talent
FinancialStrength
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More Earnings Stability
90
95
100
105
110
115
120
125
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Combined Ratio – SIGI vs. Industry
SIGI
Industry
(STD. DEV 4.3)
(STD. DEV 6.7)
Source: A.M. Best, III
FinancialStrength
Pricing Success
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More Earnings Stability
90
95
100
105
110
115
120
125
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Combined Ratio – SIGI vs. National Peers
SIGI
National Peers
(STD. DEV 4.3)
(STD. DEV 9.8)
Note: National Peers include CNA, CB, HIG, TRV and WRB
FinancialStrength
Source: SNL Financial
Pricing Success
PersonalLines
Prepared for Tomorrow
Financial Strength
Commercial Lines
More Earnings Stability
90
95
100
105
110
115
120
125
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Combined Ratio – SIGI vs. Regional Peers
SIGI
Regional Peers
Source: SNL FinancialNote: Regional Peers include CINF, THG, HGIC, STFC and UFCS
(STD. DEV 4.3)
(STD. DEV 5.1)
FinancialStrength
Pricing Success
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-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
U.S. P&C Industry SIGISource: AM Best*SIGI and Industry data as of 9/30/10
Adverse/ (Favorable) Points of Calendar Year Development
FinancialStrength
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Premium-to-Surplus
1.7
1.8
1.9
1.8
1.7
1.6
1.5 1.5
1.7
1.5
1.3
1.0
1.1
1.3
1.2
1.11.0
0.90.9
1.0
0.8 0.8
0.5X
0.7X
0.9X
1.1X
1.3X
1.5X
1.7X
1.9X
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
SIGI P&C
FinancialStrength
1 point of Combined Ratio = 1 point of ROENote: Industry data as of 9/30/10
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High Quality Investment Portfolio
• Outsourcing provides access to broader market expertise
• Reallocation of risk for better risk adjusted returns
• Average “AA” bond quality
• Approximately 3.5 year average duration, including short-term & cash
• Equities and alternative investments 5% of invested assets
Bonds90.6%
Equities1.8%
Alternative Investments
3.5%Short-Term
4.1%
$3.9B Invested AssetsDecember 31, 2010
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Diversified Municipal Portfolio
Revenue 63%
GO-Local 25%
GO-State 9%
TX-PSF 3%
Repayment SourceDecember 31, 2010
• $1.4 billion portfolio
• AA rated
• 33% of portfolio matures within 3 years
• Diversified among 293 issuers
• NY, CA, NJ, IL represent $34M or 2.3% of portfolio
FinancialStrength
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Interest Rate Impact
30 bps of Yield = 1 point of ROE
FinancialStrength
• Laddered maturity schedule
• Differential between roll off rates and new money rates
• 2011: (1.4)%
• 2012: (0.9)%
• Impact to net investment income
• 2011: ($2.3M)
• 2012: ($6.3M)
0%
5%
10%
15%
20%
Fixed IncomeMaturity Schedule
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Long-Term Shareholder Value Creation
$11.58 $12.26
$13.74
$15.79
$17.34
$18.81
$19.81
$16.84
$18.83
$19.95
$0.30$0.30
$0.31
$0.35
$0.40$0.44
$0.49
$0.52
$0.52$0.52
$8
$12
$16
$20
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Per S
hare
FinancialStrength
Current Dividend Yield: 3.1%
Book Value Dividends
Pricing Success
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PREPARED FOR TOMORROW
GREG MURPHYCHAIRMAN, PRESIDENT & CEO
– SELECTIVE INSURANCE GROUP, INC. –
Pricing Success
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Selective’s Commercial Lines Renewal Pricing Success
-0.8%
0.6%1.5%
2.7%3.4% 3.3%
2.8% 2.8% 2.7% 2.8%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
Selective CLIPS Advisen ADVx CIAB MarketScout
1Q:09 2Q:09 3Q:09 4Q:09 1Q:10 2Q:10
7 consecutive quarters of positive price
3Q:10 4Q:10 Jan: 11 Feb: 11
Pricing Success
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Why Are We Successful?
• Agency relationships• Field model• Sophisticated underwriting tools and granular pricing
– Aggregate quality score by account– Targeted pricing– Agency profitability– Segment performance– Hazard grade– System calculated pure price change
• The courage to walk away
Pricing Success
Pricing Success
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Mix of Business
Middle Market$820M (57%)
Small Business$360M (25%)
Personal Lines$260M (18%)
$1.4B Direct Premium Written
Commercial Lines
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Prepared for Tomorrow
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Middle Market
Middle Market $820M (57%) • Agency relationships
are key• Agents act as risk
manager for insureds• Field underwriting and
claims model• Safety Management
Commercial Lines
Pricing Success
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Prepared for Tomorrow
Financial Strength
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Field Model
• Local knowledge of insureds• Full claims/underwriting
authority• Supported by sophisticated
underwriting tools• Safety management services
lowers frequency and increases retention
Agency Management Specialists
Field Sales Specialists
Safety Management Specialists
Claims Management Specialists
Over 300 Field Personnel
Commercial Lines
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Agency Focus
• 980 Agents• 2,000 Storefronts
• Number 1, 2 or 3 in 60% of agencies appointed for 5 or more years
• Ease of doing business• Online agency marketing
portal
600650700750800850900950
1,000
2006 2007 2008 2009 2010
Number of Agents
Commercial Lines
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Middle Market Product Expansion
Commercial Lines
• Added 20 new and enhanced products in 2009• Introduced another 11 in 2010• New products
• Aging Services, Identity Theft, Cyber Security, Technology
• Enhanced products• Resort Endorsement, Contractors GL, Property
Coverage for Municipalities
Pricing Success
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Prepared for Tomorrow
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Small Business
Small Business $360M(25%)
• Less price sensitive• Better profitability• Stronger retention• Straight through
processing
Commercial Lines
Pricing Success
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Prepared for Tomorrow
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Small Business Growth
100
150
200
250
300
2005 2006 2007 2008 2009 2010
Average DPW/Day$ thousands
Commercial Lines
Pricing Success
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Small Business Product Expansion
Auto Serv WC, Summit Contractors, BR Exp
Mfg WC, Contractors WC Exp
Auto Serv CPP
Golf CPP and Summit LRO
Manufacturing CPP Expanded
Manufacturing CPP
Light Manufacturing
Civic Organizations
Builders Risk
Expanded Special Contractors & Merchants PRO BOP
Special Contractors
Merchants PRO BOP
2000
2010
Commercial Lines
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Personal Lines
Personal Lines$260M (18%)
• Smoothes performance over the long-term
• Significant source of agent revenue
• Improving mix of business and ability to get rate
PersonalLines
Pricing Success
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Personal Lines Rate Success
PersonalLines
2.4%
7.1%
3.1%
6.3%5.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
0
2
4
6
8
10
12
14
16
2007 2008 2009 2010 2011E
Potential Premium Blended In-force Rate
NewBusiness
DPW$39 $43 $55 $62
$ in
Milli
ons
Rate
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Driving Down Cost of Goods Sold
• Litigation management• Vendor optimization• More integrated outcomes in resolution of
claims• Claims strengthens Selective brand
3 point reduction in loss costs over 3 years
Prepared for Tomorrow
Pricing Success
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Prepared for Tomorrow
Financial Strength
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Customer Focus to Improve Retention
• Continue to build relationships with end customers
• 24/7 online access for customer service needs• Improving customer experience through high
frequency touch points• Online interactive safety training resources• Safety management strengthens Selective
brand
Prepared for Tomorrow
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2011 Guidance*
• Statutory and GAAP combined ratio of 101-102%
• 2 points of catastrophe losses• 55 million weighted average shares
outstanding
Expect to continue to drive positive personal and commercial rate in 2011
Prepared for Tomorrow
*As of February 3, 2011
Pricing Success
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SIDOTI & COMPANY, LLC15TH ANNUAL EMERGING GROWTHINSTITUTIONAL INVESTOR FORUM
SELECTIVE INSURANCE GROUP, INC.MARCH 22, 2011
– SELECTIVE INSURANCE GROUP, INC. –